"In terms of the recent federal budget, we believe it further incentivises investing for profits and income rather than relying on future capital gains," Birtles states. He explains that value and income-focused strategies are fundamentally centred on companies generating enduring profits and distributing income to shareholders each year, aligning closely with ClearBridge's definition of value investing.

The federal budget has preserved the status quo for complying superannuation funds, sparing them any changes to income or capital gains tax. This ensures their continued full access to the refund of franking credits and no tax on capital gains within the pension phase. However, Birtles notes that "outside superannuation, the game is changing." He elaborates, "Under the proposed regime, franked Australian dividends are likely to become an increasingly attractive way for [non-super] investors to receive income and returns relative to capital gains."

The Australian market has witnessed a robust rebound in value stocks in 2026. Market conditions, such as elevated valuation dispersion, improving earnings momentum, and heightened market volatility, are creating attractive opportunities to invest in quality businesses. ClearBridge is focusing on companies with resilient earnings, strong balance sheets, pricing power, and sustainable income generation.

Birtles warns of the pressures facing specific sectors, particularly those exposed to consumer spending and banking. "Looking ahead, we are closely watching inflationary pressures creating significant pressure for consumers, and we believe consumer-facing and banking stocks are among the areas most exposed to the downside," he says.

However, Birtles also points out opportunities in sectors that have been underinvested in over the past two decades. "It has highlighted the importance of fuel supply chain resilience. Across our portfolios, we hold positions in companies such as Ampol, Santos, AGL Energy, Aurizon Holdings and Orica; businesses we view as 'fuel security' plays. These companies have demonstrated resilience and pricing power in sectors that have arguably been underinvested in for the past 20 years. With demand now spiking, those businesses are benefiting materially," notes Birtles.

The impact of artificial intelligence (AI) on Australian companies is another area of focus for ClearBridge. While Australia is not at the forefront of large language models, semiconductor manufacturing, or AI infrastructure, the effects of AI on local businesses are significant. "So, for us, the focus is really on how AI impacts Australian companies. We have previously discussed our view that AI could be disruptive for SaaS (software as a service) businesses," Birtles explains.

He further elaborates on the potential challenges AI poses to companies like WiseTech and Xero. As pricing power declines, competitive advantages can erode more quickly, necessitating increased investment to remain competitive. "In contrast, we think Australian oligopolies are relatively well positioned. Take Telstra as an example. AI could help deliver productivity gains of 2 to 3 per cent per annum, which has historically been difficult to achieve in the Australian economy. Importantly, this doesn't necessarily require significant job losses. It is more about improving efficiency and reducing costs faster than revenue growth slows," Birtles adds.

The resources sector in Australia is also presenting opportunities, according to Birtles. "BHP now generates more than half of its earnings from copper. Lynas is arguably the leading rare earths producer globally and plays an important role in Western supply chains. Independence Group owns the world's highest-grade hard rock lithium mine. These commodities will be critical in powering electrification and AI infrastructure over the coming years."

Birtles highlights factor-driven market behaviour as another source of emerging opportunities. "For example, global healthcare stocks have been sold off as part of broader 'anti-inflationary' positioning. That has created opportunities in businesses such as ResMed, which is delivering double-digit earnings per share growth while trading on around 16x earnings. Compare that to Commonwealth Bank trading on approximately 25x earnings with very limited earnings growth."

The ClearBridge perspective underscores that attractive valuation opportunities are not limited to traditional value sectors. "They can also emerge within growth businesses when markets become overly thematic," Birtles concludes.